Steps To Follow When Buying An Existing Business

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More and more people are diving head first into the world of entrepreneurship without giving it much thought. What most of these people do not understand is not everyone is cut out for this life. This is why a big percentage of startups fail within the first year of business. Why take such a big risk when you have the option of buying an existing business?

Buying an existing business is much easier than starting your own business from scratch. You will already have customers and the business will already be well established, thus saving you the troubles that most entrepreneurs have to go through when starting their own businesses. You also won’t have to wait months or even years to break even. Below are the steps you should follow when buying an existing business:

Research

As with any other purchase decision, you must do extensive research before settling on a business to invest in. Read about the industries in which you can invest to understand how they work. If you have your mind set on a particular industry, find out what problems face businesses operating in its space and everything about the industry, so you know exactly what you are getting yourself into. It is always better to choose an industry that you are passionate about as you will have an easier time running your business.

Paperwork

Make sure that you have all necessary paperwork required to operate in your industry of choice. You must have all the permits and licenses required, or else you will be conducting business illegally and this can cost you quite a lot of money. Read the rules governing the industry as well just to know what kind of environment you will be operating in.

Determine the value of the business

You need to know the value of the business you are interested in so that you can make a reasonable offer. If you do not know how to do the valuation, you can engage a professional to help you determine the value of the business for sale that you would like to buy.

Do more research on the business

Before buying a business, you need to know who its major stakeholders are. You also need to know whether they have any lawsuits filed against them, check out their tax returns and financial statements. You may need to hire a professional to help you go through the documents and identify any potential problems.

Get a professional to help you come up with an adjusted price

The adjusted price should account for inventory, utility, rent, and other such things. This will give you an idea of the actual cost of the acquisition. There are many things you may unknowingly leave out and find that the acquisition costs you much more than you had anticipated.

A professional will also help you with more complicated things like transfer of assets and intellectual property which you might not be able to do on your own.

Once you have done all this, the only thing left is to finalize the deal by means of a bill of sale and a settlement sheet.